Growth is good for the poor

The contention of opponents of trade liberalization that economic growth benefits the rich and leaves out the poor is refuted in a new paper by David Dollar and Aart Kraay of the World Bank.

Their study of a sample of 80 countries covering four decades found a one-for-one relationship between income of the bottom fifth of the population and per capita GDP.

While there are variations around this relationship, the study of data on growth, incomes and other variables showed that several popular views about the poverty-growth relationship are untrue.

The effect of growth on income of the poor is no different in poor countries that in rich ones. And it is not true that incomes of the poor fall more than proportionately with those of other sectors of the population during economic crises.

Openness to foreign trade benefits the poor to the same extent as it benefits the whole economy, as do good rule of law and fiscal discipline.

Because high inflation hits the poor harder than it does overall GDP, avoidance of inflation is even more beneficial to the poor than it is to everybody else.

Reporting on the study, The Economist comments: “Surveys often show that the poor hate inflation more than the rich. Now you know why.”